Home >Markets >Mark To Market >After a choked Q1, IndiGo flies in unchartered zones holding on to liquidity

Everybody knew InterGlobe Aviation Ltd that runs IndiGo would report massive losses for the June quarter owing to covid-19 lockdown and the ensuing travel restrictions. The moot question was how much?

The airline, India's largest, reported a net loss of 2849 crore on revenues of nearly 767 crore. For what its worth in these trying times, this means the loss margin stood at a whopping negative 371%.

Encouragingly, fixed cash burn has dropped to about 30 crore per day in June from roughly 40 crore per day in March. This improvement was helped by cost cutting initiatives and cash contribution from the much smaller scale from operations. For the June quarter, IndiGo’s employee costs and supplementary rentals & maintenance cost declined by about 17% and 56%, respectively, compared to the March quarter.

IndiGo expects cash contribution to increase further as its operations scale up, boosting its liquidity position. Speaking of cash, the airline has done well. The sequential drop in its free cash was curtailed to Rs1400 crore. At June-end, free cash stood at Rs7527 crore, offering enough comfort to sail through this stormy weather.

But how long will the free cash last given the uncertain business conditions? According to ICICI Securities Ltd, “Based on Q1FY21 run rate and considering IndiGo is following a strategy of continued induction of neos, the present free cash of Indigo will last for four quarters even without any vendor negotiations and seven quarters including the impact of negotiations seen in Q1FY21."

Overall, IndiGo’s liquidity measures and cost control efforts have helped contain the drop in cash balances vis-à-vis reported performance, say analysts. While announcing its March quarter results, IndiGo had explained various steps, which would provide 3000- 4000 crore of liquidity.

In its June quarter earnings call, Aditya Pande, chief financial officer, InterGlobe Aviation, said it is also working on sale and lease back of its owned planes and obtaining moratorium on some loans. “We expect that these actions will help us raise additional liquidity of approximately 2000 crore." On Thursday, the company has a board meeting to consider fund raising.

While IndiGo has risen to the occasion during this pandemic, its capacity guidance is a bit underwhelming. The airline expects its September quarter capacity to be about 40% and that of December quarter to be 60-70% on a year-on-year basis.

Prabhudas Lilladher Pvt. Ltd has cut IndiGo’s FY22/FY23 Ebitdar estimates by 7.4% and 9.5% respectively as scaling up of operations remains sluggish given localized lockdowns and low consumer confidence due to rising incidence of Covid-19 cases. Ebitdar refers to earnings before interest, tax, depreciation and amortisation; a key profitability measure for airlines.

Demand remains paramount. As long as people shy away from flying, cost cutting measures can only help to a limited extent. Unsurprisingly, the IndiGo stock is about 40% away from its pre-covid high in January.

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